As a due diligence and design firm, our work is all about helping our real estate clients achieve success in their projects – managing risk, making smart investments, bringing projects to life. Much of that work is driven by financial interests, some of it by public mandates, but regardless we as consultants and the real estate industry at large do a whole lot towards the “greater good” along the way. More properties get cleaned up, energy optimized, seismically retrofitted, or otherwise improved because of a real estate transaction or project. For example, 75% of all radon tests conducted are due to a real estate transaction. Radon is the second leading cause of lung cancer, so that’s potentially a lot of lives saved!
As I reflect on 2016, it’s striking how often our clients have chosen to improve an asset not because they have to, but because they want to – to reduce risk, improve the asset value, raise rents, etc. With CRE values up, it makes more sense now than ever.
So, as we collectively reflect on the past year and look ahead, here are a few things we can all feel good about. Our nation’s building stock is becoming…
- Greener – 2016 might have been the “greenest” year for CRE yet. Multifamily green finance programs took off – over $3.2 billion in green loans had been funded by Freddie and Fannie as of late 2016. Each of these assets will take steps to (or already have) reduce energy or water consumption and/or receive a green building certificate. Institutional investors are increasingly being asked by their capital stack to demonstrate sustainability in their real estate portfolios, which is also driving more energy and sustainability upgrades.
- Better – When we do Property Condition Assessments, more investors are asking us to look at their options for improving the asset. Instead of just reporting the repairs and replacement items required, they want to know “what if I overhaul this?” or “how can I improve the tenant experience?” We are actively providing as an add-on to our PCAs, feasibility studies that show the clients budgets for upgrade options.
- Safer – There were big moves to improve the seismic resilience of our building stock in 2016. Los Angeles joined the list of cities with a mandatory seismic retrofit ordinance for certain higher risk buildings. Retrofitting not only improves the safety and performance of an asset during an earthquake, but also increases asset value. With over 13,000 properties listed as potentially subject to the ordinance, that is a lot of buildings that will be improved! San Francisco’s similar ordinance also continues to drive many improvements. On the transactional side, ASTM updated the standards for conducting Seismic Risk Assessments. The changes intended to improve the quality and consistency of these reports which assess how a building will perform during an earthquake. Of all the buildings that are seismically assessed during a CRE transaction, a percentage of those buildings will be retrofitted. That’s more assets improved and more lives saved during the next big one.
- Cleaner – What once were considered deal killing environmental issues, for example a PERC release or a vapor intrusion issue, are increasingly being seen by investors as a solvable challenge – and more importantly, one that is worth solving. This is largely due to a competitive market where it makes even more financial sense to clean it up. Also the industry’s understanding of environmental risks has really grown from where it was a few years ago, and with that comes greater savvy in approaching a solution. This theme really stood out in our recent survey on Environmental Risk Perceptions – check out the findings here.
As you enjoy the holiday season with family and you explain to your children, nieces, and nephews what you do for a living, don’t be afraid to pivot away from the narrow (and boring) world of investing and claim the credit that our industry deserves as purveyors of good.